This publish is a part of a collection sponsored by AgentSync.
Mergers and acquisitions (M&A) are all the time a scorching subject in insurance coverage. From small companies hoping to get acquired, giant companies hoping to get bigger, or carriers seeking to broaden into new geographies or strains of enterprise, there are a mess of causes firms take into account mergers and acquisitions.
Because it’s such a typical prevalence inside the insurance coverage trade, it’s no shock that we’ve written about insurance coverage mergers and acquisitions earlier than. Fascinated with studying about why you should prioritize compliance in the business acquisition process? Accomplished. Or questioning how one can avoid getting stuck with a lemon in an insurance coverage acquisition? Accomplished. How about an argument for why your tech stack matters before you even consider selling your insurance coverage company? Accomplished!
However if you happen to’re simply searching for some fundamentals – specifically what’s all this speak of M&A within the insurance coverage trade about anyway – you then’ve come to the precise place. On this weblog we’ll cowl the foundations like:
- What are mergers and acquisitions?
- How are mergers and acquisitions completely different from each other?
- Why are there so many mergers and acquisitions in insurance coverage?
- Why do some insurance coverage companies purchase others?
- Why would you need your insurance coverage company to be acquired?
Earlier than you learn on, do not forget that we’re specialists in producer license compliance administration however we’re not your legal professional or accountant. Earlier than contemplating any insurance coverage M&A exercise for your self, be sure you get professional recommendation from a trusted skilled. For simplifying and automating your company’s, provider’s, or MGA’s compliance, see how AgentSync may also help.
What does M&A imply in insurance coverage?
The time period M&A stands for mergers and acquisitions: the method by which a number of separate enterprise entities develop into one. The phrase mergers and acquisitions can embody a couple of completely different particular actions, every with completely different meanings and implications.
What’s an insurance coverage merger?
An insurance coverage merger is when two separate firms kind into one new firm. For instance, insurance coverage provider A and insurance coverage provider B resolve they’d be in a greater place collectively forming a brand new firm: insurance coverage provider C.
What’s an insurance coverage acquisition?
An insurance coverage acquisition is when one firm acquires a number of different firms, thus bringing the acquired firm below the umbrella of the buying firm. The buying firm, additionally known as a guardian firm, doesn’t have to purchase one hundred pc of the corporate it needs to accumulate. Typically, an organization solely wants to accumulate greater than 50 % of one other enterprise to achieve management.
How do mergers and acquisitions differ?
Fairly merely, a merger often refers to a “merger of equals” wherein two firms mutually agree that it’s a wise enterprise transfer to mix into one, newly fashioned firm. An acquisition often refers to a bigger firm buying all or a part of a smaller firm and changing into its new proprietor or guardian firm. Acquisitions could be voluntary or involuntary (typically referred to as a takeover or hostile takeover if the corporate being acquired isn’t mutually prepared).
How widespread is M&A inside insurance coverage?
Mergers and acquisitions occur steadily inside the insurance coverage trade, encompassing insurance coverage companies, carriers, MGAs/MGUs, and insurance coverage know-how firms (insurtechs).
Over the past 20 years, insurance coverage M&A deal values (how a lot every deal is price) and deal quantity (the variety of offers carried out) have grown and remained excessive: wherever from just below $40 billion across about 80 deals in 2003 to a record high of $57.5 billion across 869 deals in 2021. We must always be aware that the precise variety of offers and deal quantity differ by sources however everybody agrees 2021 was a report yr.
Because the economic system slowed in 2022, insurance coverage trade mergers and acquisitions additionally cooled off. Nevertheless, the industry “remained resilient” in comparison with M&A exercise in different sectors of the economic system – with company and brokerage exercise fueling insurance coverage M&A at a far higher price than insurance coverage carriers.
Why do insurance coverage carriers take part in M&A exercise?
The most important motive an insurance coverage provider will endure mergers and acquisitions is to extend market share. They will accomplish this by merging with or buying an insurance coverage provider with a footprint in an entire new geographic area, new strains of enterprise, or each. Generally insurance coverage carriers will look to accumulate others in an try and swallow up an organization they see as beneficial competitors, which they’d moderately have below their very own roof than to compete in opposition to.
Insurance coverage firms additionally see alternatives to scale back working prices and overhead via M&A.
Why do insurance coverage companies take part in M&A exercise?
In lots of instances, insurance coverage company homeowners see acquisition as the very best exit technique after they’re able to retire. If an insurance coverage agent has constructed a profitable company with a big and beneficial e-book of enterprise over the course of their profession, promoting the company to a bigger company could be a lovely proposition. From the opposite aspect, bigger companies usually wish to broaden their attain into new states and new strains of enterprise, and the best approach to do that is commonly to accumulate an present insurance coverage company that brings the specified qualities into the combination.
Why are mergers and acquisitions engaging in comparison with natural progress?
Natural progress will be the gold normal of a wholesome enterprise however mergers and acquisitions may also help an organization develop and hit the bottom working shortly with out having to employees up, practice, or implement new know-how. In a greatest case situation, the buying firm can begin to see a nearly-immediate return on their funding with an already worthwhile firm now below its umbrella.
What are some down sides to insurance coverage mergers and acquisitions?
Generally M&A creates redundancies, each in individuals and programs. Spending money and time to type out how the newly-created enterprise entity will operate when combining two beforehand unbiased firms, or how one firm will take in the operations of one other, could be a draw back of mergers and acquisitions.
Having the precise insurance coverage know-how in place can result in extra profitable mergers and acquisitions
This won’t appear apparent however when present process a merger or acquisition, insurtech issues. For firms seeking to be acquired, already utilizing trendy insurance coverage infrastructure means potential patrons have a transparent view of what they’ll be getting from operational, monetary, and compliance views. With AgentSync, for instance, an insurance coverage company seeking to be acquired can present potential patrons with a full, real-time, correct view of the compliance standing of each producer working below that company.
For firms seeking to purchase or merge, having the precise tech stack will imply spending a lot much less time shifting information over by hand. Geared up with the precise programs in place already means integrations and automation may also help take the load off human workers who’d moderately be doing extra necessary work all through the merger and acquisition course of.
Whether or not you’re contemplating M&A at your group or not, check out AgentSync’s suite of options to modernize your insurance coverage enterprise.
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